Inflation shock forces Kiwi borrowers to rethink fixing terms
New Zealand mortgage advisers are facing a very different 2026 than they expected, with inflation surprising on the upside and banks lifting longer‑term fixed rates even though the official cash rate (OCR) hasn’t moved yet.
Annual inflation in the final quarter of 2025 jumped back above the Reserve Bank’s 1–3% target band, putting pressure on the new governor to consider earlier‑than‑planned OCR hikes. Several major lenders have already reacted: Westpac and ASB have raised longer‑term mortgage rates, while ANZ has cut its house price forecast for 2026 from 5% to 2% growth, OneRoof reported.
Kiwibank chief economist Jarrod Kerr (pictured left) said he was glad he had already locked in most of his own debt.
“With the year off to a gnarlier start,” Kerr said, he was “pleased he already fixed the bulk of his mortgage for three years.” But he urged borrowers not to overreact to one data print, noting “there’s still enough weakness in the economy to see inflation ease from here”.
For advisers, the key question from clients is “how long should I fix?” Kerr and several other experts spoken to in the report favour the middle of the curve.
Breakeven analysis suggests fixing for two or three years balances value and protection if rates continue to edge higher. Longer terms may still appeal to risk‑averse borrowers, but Kerr cautioned that “you never get the highs and the lows exactly right all the time.”
Loan Market director and senior financial adviser Cameron Marcroft shared a similar view, saying “the four and fives have probably bolted a bit too far,” and his team wouldn’t be encouraging most people to commit for five years at current pricing.
“Five years is a long time and circumstances can change even though you don’t think they’re going to,” Marcroft said.
Economists also stressed the importance of structure, not just headline rate. Kerr suggested many borrowers could “consider chopping their mortgage up rather than keeping it as one big sum” to build in flexibility as different tranches roll off.
ANZ economists, meanwhile, warned that “floating is still very expensive,” with shorter fixed terms or a mix of terms a better fit for clients needing flexibility.
Infometrics chief executive Brad Olsen (pictured center) noted that “markets and banks are not necessarily waiting” for the Reserve Bank, with some lenders already nudging up four‑ and five‑year rates. Against that backdrop, Cotality chief economist Kelvin Davidson (pictured right) said it was “not necessarily panic stations, but you can’t ignore” the inflation surprise.
For mortgage advisers, the message is clear: focus less on predicting the exact OCR track, and more on helping clients understand trade‑offs between certainty, flexibility, and cost as banks move ahead of the central bank.
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